Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: For foreign tax credit purposes, whether the foreign tax should be the gross amount before the claim for prior year minimum tax
Position: In this particular case, foreign tax credit can be granted
Reasons: It is because the AMT is attributable to U.S. source income and no foreign tax credit has previously been claimed on such AMT.
February 10, 2000
Ottawa Tax Services Office International Section K. N. Malhotra S. Leung Chief of Appeals 957-2115
Attention: Connie Alberelli 2000-000290
XXXXXXXXXX
Foreign Tax Credit
We are writing in response to your memorandum of December 14, 1999 in which you requested our view as to whether a foreign tax credit should be granted to XXXXXXXXXX (the taxpayer) in respect of taxes he did not pay to the United States (the U.S.) for XXXXXXXXXX because of his claim in XXXXXXXXXX for a credit for U.S. minimum tax that he was assessed for the year XXXXXXXXXX. We acknowledge the additional information you provided through the facsimile transmission.
The relevant facts of the case as determined from the information provided to us are as follows:
1. Throughout the years XXXXXXXXXX the taxpayer was a resident of Canada and was a nonresident alien of the U.S. (i.e., he was neither a U.S. citizen nor a resident alien of the U.S.).
2. The taxpayer had income from various sources in the U.S. in both XXXXXXXXXX and has filed U.S. Nonresident Alien Income Tax Returns (Form 1040NR) for both years.
3. The taxpayer was assessed U.S. alternative minimum tax (AMT) of U.S.$XXXXXXXXXX for the year XXXXXXXXXX plus interest and penalty which were all subsequently paid by the taxpayer.
4. The taxpayer claimed a credit for prior year minimum tax of U.S.$XXXXXXXXXX on his XXXXXXXXXX U.S. Nonresident Alien Income Tax Return (1040NR).
5. The taxpayer claimed a foreign tax credit for XXXXXXXXXX in Canada for U.S. taxes "paid" before taking into account the claim for the U.S. credit for prior year minimum tax.
6. The taxpayer's XXXXXXXXXX T1 income tax return was reassessed and his claim for the foreign tax credit was reduced as a result of the reduction of the foreign tax paid to the amount equal to the U.S. tax paid net of the credit for the prior year minimum tax.
Our Comments
From the information provided to us, it appears that the U.S. AMT for the year XXXXXXXXXX arose as a result of the adjustment made to the itemized deductions claimed by the taxpayer. Since the AMT is attributable to U.S. source income because only U.S. source income was reported on the XXXXXXXXXX 1040NR of the taxpayer who was a nonresident alien of the U.S. in that year, such AMT is creditable for Canadian tax purposes as it is a non-business income tax as defined under subsection 126(7) of the Income Tax Act.
The taxpayer is entitled to a foreign tax credit in XXXXXXXXXX for such AMT paid by him. Technically, the taxpayer should have filed an amended return and claimed such a credit for that year. Since the taxpayer did not do so but rather claimed an increased foreign tax credit for XXXXXXXXXX by treating the foreign tax paid as that before the claim for the prior year minimum tax, we do not object if an increased tax credit is granted for XXXXXXXXXX if you do not feel it is necessary for the taxpayer to amend his XXXXXXXXXX tax return to claim such a credit.
If you have any question regarding the above, please do not hesitate to contact us.
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
P.S.: For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their database. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Request for this latter version should be made by you to Jackie Page at (819)994-2898. The severed copy will be sent to you for delivery to the client.
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